The more state governments rely on private contractors to supervise Medicaid, the more key decisions flow out of government into private hands. That makes it even harder for states to handle an extraordinarily complex program, to control costs, to prevent fraud and to make sure that people get the care they need. And with big budget cuts coming, that also makes it harder to make the big changes that will be needed.
The realm of Medicaid management is a mostly hidden world of private contractors and subcontractors, of relatively tiny government bureaucracies and sprawling private networks. A single federal agency, the Centers for Medicare and Medicaid Services, accounted for 27 percent of all federal outlays last year. Medicaid accounted for 8 percent of the total. But CMS had just 0.28 percent of all federal employees because it does almost all its work through private contractors.
The same pattern ripples down to the states. In Texas, the agency charged with managing Medicaid has about 36,000 employees, or about 10.7 percent of the state government workforce (and not everyone in the agency, the Health and Human Services Commission, works full time on managing Medicaid). But Medicaid accounts for 42 percent of the state’s spending. In California, the state’s Department of Health Care Services accounts for just 2 percent of the state government workforce, while Medicaid is 57 percent of all state spending. In Florida, the Agency for Health Care Administration has 0.6 percent of all state employees, and the Medicaid program they manage constitutes 31 percent of the state budget.
There’s a vast network of contractors in the Medicaid management chain. There are “managed care organizations” that connect the state (as funder) with beneficiaries (who get the care). There are “management contractors,” who provide administrative support, “Medicaid Management Information Systems” contractors to track claims and eligibility and “Program Integrity Contractors” who root out fraud and abuse.
This often hasn’t worked out smoothly. Consider Texas. In December, the state sent bills to school districts for what the Centers for Medicare and Medicaid Services had concluded was an improper state charge. The money had gone to local schools back in 2011 for services to help Medicaid-eligible students who needed mental therapy, physical therapy, and nursing care. The feds found 238 errors and billed the state for the mistakes. Many of the errors were for eligible services that simply hadn’t been properly billed and supported by the right documentation. After years of appeals, CMS ultimately decided that Texas had to repay $16 million that CMS had provided.
So at a time when local schools throughout the state were struggling with big budget problems, the state tried to claw back the money that it had received from the feds and distributed to the districts. Local school districts hadn’t done anything wrong. The errors had been made by a contractor that the state had hired more than a dozen years before to process the claims.
Then the story got even more complicated. The contractor used a sample of expenditures to determine how to document the spending. To generate that sample, it used a random number generator, but the contractor hadn’t kept the random numbers it used and the state hadn’t managed its contractor carefully enough to document the methodology. So, when it was time to demonstrate that the billing was correct, the contractor couldn’t reproduce its work. The state got the bill but local school districts — the one group completely blameless — were stuck paying it, without any chance to build the hit into their annual budgets.
This problem wasn’t unique. A few years before, a Texas state audit into the health agency looked at 28 contracts it had issued — and it found problems in all 28 of them. The problems amounted to more than $3.4 billion.
These problems occur throughout the nation. CMS doesn’t have enough staff to oversee the states or its own contractors. The states too often stumble into problems managing their contractors. And now the feds hope to squeeze nearly a trillion dollars out of Medicaid, already one of the nation’s most complicated programs, plagued by at least $31 billion in annual improper payments, according to the U.S. Government Accountability Office.
It's a separate question whether the plans to squeeze the Medicaid program represent good policy, although there’s no question that millions of Americans will be hurt. But there’s no doubt about what’s coming. The Medicaid program, already plagued by problems of fraud, waste and abuse, will face even more issues because the contracting problems are sure to multiply.
And there’s one additional certainty. The complexity of the program’s management makes it impossible for any but the bravest policy wonks to wade into it. So, when problems occur — as they surely will — it will be very hard to figure out who’s to blame.
Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
